Solvency
A firm’s ability to fulfill long-term liabilities and maintain financial viability.
Detailed Description
Solvency
What is the definition of solvency?
Solvency refers to the ability of a company to meet its long-term financial obligations, indicating whether its total assets exceed its total liabilities.
Why is solvency important for investors?
A solvent company is seen as a safer investment, indicating a lower risk of default.
What are the two primary types of solvency?
The two primary types of solvency are accounting solvency and economic solvency.
What is the difference between solvency and liquidity?
Solvency focuses on long-term financial health, while liquidity refers to the ability to meet short-term obligations.
How can insolvency impact a business?
Insolvency can lead to bankruptcy, loss of assets, reputational damage, and job losses.